2G auction: Is Videocon proxy for Reliance Industries?

For those who thought the start of 2G bidding process will put an end to months of speculation about Reliance Industries’ telecom strategy, the suspense just got more complex after the company abstained from bidding.

The buzz that Videocon Industries may be a proxy for the country’s largest conglomerate is getting louder.

Bharti Airtel, Vodafone, Idea Cellular, Tata Teleservices and Telenor have also applied for the spectrum.

Brokerage IDFC has termed Videocon’s 2G bid as surprising.

It pegs the company’s final outgo for the company at more than Rs 20,000 crore, depending on the circles it bids for. Videocon has applied for licences in 17 circles for 1800Mhz and 10 circles for 800Mhz band.

“Videocon Industries has a net worth of Rs 9,700 crore (March 2012). Clearly, an investment of 2x the net worth in a maturing industry (where others have struggled to build a profitable business at 1/10th the cost) looks optimistic,” IDFC said in a note.

It does not rule out the possibility of Reliance Industries supporting Videocon’s bid. For one, Dhoot, in a media interaction on Friday, referred to “cordial relationship” between the two groups and the fact that Videocon has taken advice from Mukesh Ambani on bidding for 2G auctions.

Secondly, HFCL, the current partner of Reliance Infotel in BWA operations, was associated with Videocon Group in the past.

However, the brokerage does not believe Reliance Industries would gain much from acquiring Videocon (limited presence of Videocon Telecommunications).

It “would be better off acquiring a mid-sized operator (if possible)” for RIL, it said.

“The limited gain from applying through this route could mean savings of Rs 1,650 core (adjustment for earlier license fee paid by Videocon) in spectrum cost for the potential partners,” it said.

The brokerage expects the 2G auction to be a short affair.

“We believe there would be a few circles with excess supply from the beginning. However, circles in which Telenor, Idea and Videocon are interested could see some competition (West Bengal, Bihar, etc),” the note said.